As Wall Street looks for a catalyst to stop the slip within the stock market, some of the strategists have been looking up to the bank sector for help.
“US bank stocks are the market’s Achilles’ heel just now,”
Nicholas Colas, the co-founder of DataTrek Research, wrote in his note to the clients in this week.
“[Bank stocks] need to participate in any recovery rally in order to validate the notion that higher interest rates do not doom the US economy to a recession next year. If you are very bullish here, this is the group for you.”
Attacked during the regional banking crisis, which happened in March, the stocks of banks have notably fallen behind the S&P 500 this year, even as they have recovered from the lows that reached back in May.
As of the records on Thursday, the S&P Bank Index ETF and S&P Regional Bank Index ETF were considerably down by over 20% and 30% respectively. Contrary to this, the S&P 500 has earned about 11% this year.
An analyst at RBC, Gerard Cassidy, who is in charge of covering the large banks, mentioned the path forward for these organizations will probably depend on the interest rate path of the Fed.
If the Fed is done with its hiking now, then stocks of banks will likely “bottom out” at the lowest of the valuations witnessed in decades, as per Cassidy’s knowledge. But if there is a reacceleration of inflation, and the Fed is forced to hike its rates, then that could be bad news for the bank stocks.
“That’s the bear case for the banks,”
Cassidy talked about the chances of more hikes.
“Now that’s not … a consensus call, and we’re not calling for that. But that’s the long-tail risk for the banks today.”
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